Jobs Report Enough for Rate Hike, but Not Perfect
The jump in U.S. jobs creation in April by 211,000 was an important indication that perhaps the Fed was right when it implied in its latest monetary policy report that the weakness in the first quarter was only temporary.
The drop in the unemployment rate to 4.4 percent was also encouraging. However, although the average hourly wages rose as expected by 0.3%, the central bank would like to see it a little stronger. Average hourly earnings are now up 2.5 percent year over year.
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Additionally, the Labor Department’s data showed the average workweek increased slightly at 0.1 hour. However, the labor force participation rate dropped slightly to 62.9 percent.
As I said earlier, the Fed would like to see average wages higher. This would likely attract the sidelined worker back into the labor force which would in turn raise the labor force participation rate.
The continuing weak labor force participation is discouraging to some, but it should not be enough to stop the Fed from raising interest rates. It should continue to be a concern from the Trump administration because of their claims that we are at or near full employment.
Even though the Fed is likely to raise rates in June, both the central bank and the Trump administration should continue to find ways to sustain economic growth. And the first area they should work on is the creation of more, higher-paying jobs. The current data suggests that we are well below the employment figure we would have if the labor force participation rate were at more historical levels.
Critics are saying there are no simple fixes for the declining labor force participation although a Federal government retraining program may do the trick, however, the longer we continue to delay the passing of President Trump’s spending programs, the more pressure we’re going to see on labor force participation.
So while we may have strong enough jobs numbers to warrant a rate hike from the Fed in June to protect the economy from overheating, the U.S. is still far from sustaining economic growth without strong labor force participation in this economy.
Let’s hope the Fed pays attention to all of the components and not just the headline numbers. Let’s hope, it and the government, continue to find ways to increase wages so more people will want to work.